Advertisement
YOU ARE HERE: LAT HomeCollections

California and the West

State Accuses Escrow Firms of Overcharging Home Buyers

Lawsuit: Title companies are also targeted by controller's office, which will seek refunds for customers who may have been shortchanged by $500 million.

May 25, 1999|DAN MORAIN | TIMES STAFF WRITER

SACRAMENTO — Equating escrow companies' business practices with "petty crime," Controller Kathleen Connell on Monday accused the industry of withholding as much as $500 million from California home buyers in recent decades.

Connell made the charge as she announced that she had filed a class-action lawsuit last week against major escrow and title insurance companies seeking to recoup the money on behalf of the state and consumers.

The two-term Democrat said individual consumers have been overcharged anywhere from a few dollars to $500 or more on each transaction dating back to the 1970s, and vowed to seek refunds on the behalf of home buyers.

"It wasn't one or two companies. It was an industry standard," Connell said at a Capitol news conference, adding that she has 20 auditors going through escrow and title insurance company books to calculate the extent of the problem. She said she will add 10 more.

"We will be knocking on their doors. We'll be demanding the money," Connell said.

The suit accuses the companies of unfair business practices. It names Fidelity National Title Insurance Co. of Santa Barbara as the lead defendant, although Connell said many other escrow and title insurance companies also will be targets.

Representatives of the escrow industry vehemently denied Connell's accusations.

"We think they are completely wrong on this," said Peter Sadowski, executive vice president and attorney for Fidelity National.

Sadowski said Fidelity hired its own accounting firm after Connell began her audit. Preliminary findings suggest that Fidelity and Connell's estimates of the sums at stake are "not even in the same ballpark," Sadowski said.

"We hope to be able to show the facts to the office of the controller so they will see there isn't any basis for this lawsuit," Sadowski said.

But Connell contended that the companies simply keep money left over from escrow transactions. She called such actions "bad, sloppy business practices," and said, "It's like petty crime." She noted, however, that there are no plans to charge the companies with criminal wrongdoing.

According to Connell, the problem occurs when home buyers place their money into escrow accounts to pay for myriad closing costs. In some instances, she said, charges are levied for services not performed. In others, consumers are overcharged for the services that are performed.

In still other circumstances, money left in escrow accounts at the end of transactions is not always refunded to home buyers. Additionally, escrow companies, and not consumers, receive any interest on the money placed in escrow accounts, the lawsuit states.

Connell did not cite specific examples, nor does the lawsuit filing.

The controller claims jurisdiction because, under state law, her office is responsible for collecting unclaimed money and other property on behalf of Californians, and finding the individuals to whom it belongs.

Connell appeared alone at the news conference, though Insurance Commissioner Chuck Quackenbush and the Department of Insurance also are plaintiffs, and Atty. Gen. Bill Lockyer filed the lawsuit on behalf of both elected officials.

Quackenbush raised the issue of escrow company charges in February, accusing Old Republic Title Co. in an administrative action of using customer deposits to collect $30 million for itself during the last decade. Quackenbush's action followed a lawsuit against Old Republic by San Francisco City Atty. Louise Renne.

"We are optimistic that the industry intends to work cooperatively to find a more than adequate resolution of the problem," said Lockyer spokesman Nathan Barankin.

Advertisement
Los Angeles Times Articles
|
|
|